§ These then are my proposals. This is an almost neutral Budget. I have said all along that we cannot base expansion on a general reflation of domestic demand. The unconditional part of my Budget is neutral both in financial and demand terms and it does not reduce the overall burden of taxation, although I believe that it distributes that burden more fairly. If we can achieve the low pay limit, the effects this would have on confidence would enable me to implement the additional tax reliefs, which would go a little beyond what is necessary to offset the temporary demand effects of such a limit. The net effect might be to increase output in the first half of next year by about £400 million or about one-third of 1 per cent.
§ In that case, I see the economy developing as follows between now and the middle of 1977. I expect the recovery to gather speed. Gross domestic product, which fell during 1975, should grow by about 4 per cent., and manufacturing output by about 8 per cent., in the year to mid-1977. The increase in demand will come largely from exports and stock-building: little will come from consumption. This is a pattern of growth which we should be able to sustain and to improve on later if we can reduce bottlenecks and achieve a better trade performance.
§ Given the prospect of rising output and the evidence of a revival in business confidence, investment is likely to start rising again this year. The increase in manufacturing investment between the first half of this year and the first half of 1977 could be of the order of 15 per cent., although private fixed investment as a whole is likely to grow about half as fast.
§ Since the forecast growth of GDP is above the trend growth of productive potential, we shall begin to take up 281 slack in the economy. As I explained earlier, it is too soon to say whether we have already reached the peak of unemployment. On past experience we should have to expect a substantial lag between changes in output and changes in employment: this is why most forecasts suggest that the turning point may still be some months off. On the other hand, it is difficult to reconcile those forecasts with the recent monthly figures, not only of unemployment but of vacancies, short-time working, overtime and temporarily stopped.
§ These are encouraging signs but it would be foolish to be complacent. That is why I have introduced additional measures which are specifically designed to protect employment. Given the low pay limit, I estimate that the additional tax relief, together with the temporary employment subsidy, will provide in the next 18 months about 100,000 more jobs than would be available without them.
§ On the balance of payments, I believe that despite the upturn in economic activity we shall hold on to the improvement in the current balance which we achieved in 1975.
§ On prices, I believe that we can still achieve our target of under 10 per cent. next winter. The prospect for 1977 depends crucially on achieving the low pay limit. We have already halved our rate of inflation and if we can achieve the low pay limit for the next round we can halve it again by the end of 1977.
§ The forecast for the PSBR for 1976–77 is £12 billion. This represents a lower percentage of GNP than in 1975–76. The forecast would be about £700 million lower without the conditional tax reliefs but, as I said earlier, I believe it is well worth accepting some increase in the PSBR in order to achieve a lower rate of inflation.
§ Within the severe constraints imposed by our economic circumstances I have tried to ensure that such help as can be provided should go to those, such as pensioners and families with children, who need it most. My proposals are also designed to ensure that the majority of working people will be better off with a low pay limit than without it.
§ As I said at the beginning of my speech, this is likely to prove the most 282 critical Budget of the present Parliament. It aims at creating the conditions in which Britain can achieve that improvement in her industrial performance which is essential if we are to return to full employment as fast as possible. That is why the measures which I propose relate primarily to the necessary increase in our industrial efficiency and the necessary reduction in our industrial costs.
§ But there are severe limits to what any British Government can do by budgetary measures to meet the objectives I have set. The main responsibility must fall in this, as in all else, on the British people as a whole, and in particular on those who work in industry. I have set out the problems which we must overcome if we are to reach our goal. I have explained how we can overcome them. I believe the British people have proved over the last 12 months that they are capable of facing the facts. All that is required to achieve the formidable objectives which I have set is a marginal improvement in our industrial performance at every level. This will suffice to produce the economic miracle we need. I believe that the Budget creates the conditions in which this improvement will be possible. On those grounds I ask the House to support it.
§ Mr. Deputy SpeakerUnder Standing Orders the first motion, entitled "Provisional Collection of Taxes", must be decided without debate. When that matter has been disposed of, I shall call the Chancellor formally to move the motion entitled "Amendment of the Law". It is on that motion that the Budget debate will take place today and on the succeeding days. The remaining motions will not be put until the end of the debate on Monday.